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Sunday
A16
guardian.co.tt Sunday, March 26, 2017
On Thursday last, Finance
Minister Colm Imbert pro-
posed to give serious considera-
tion to providing T&T’s manufac-
turing sector with priority access
to foreign exchange.
In a Central Bank presentation
in December 2015, the manufac-
turing sector was identified as the
country’s second largest consum-
er of foreign exchange, using close
to US$2 billion between January
2013 and November 2015.
That presentation described the
retail and distribution sector as
“the most voracious consumer of
foreign exchange,” swallowing al-
most US$4.5 billion or nearly one-
third of the total foreign exchange
sold over the period of close to
three years.
It was also revealed that credit
card payments, which were the
third largest user of foreign ex-
change, consumed about US$1.8
billion; car dealerships, the fourth
largest, used up US$1.3 billion;
and the telecommunications sec-
tor, the fifth largest, demanded
US$900 million.
On the face of it, and given the
inability of T&T to supply all the
demand for foreign exchange, Mr
Imbert’s proposal to provide local
manufacturers with preferential
access to foreign exchange—plac-
ing them at the front of the queue
ahead of the retail/distribution
sector and car dealerships—is
worthy of national consideration,
consultation with the relevant
stakeholders and analysis of suc-
cessful international precedents.
But it must be understood that
the corollary of that preference is
the likelihood that the retail/dis-
tribution sector would receive less
foreign exchange than it does now.
Reducing the foreign exchange
supplied to retailers and distrib-
utors could result in a reduction
in the collection of VAT and other
tax revenues and many establish-
ments going out of business.
That would inevitably lead to the
retrenchment of many clerks and
shop assistants and, therefore, an
increase in the country’s unem-
ployment rate among a cohort of
the population that earns income
close to the minimum wage.
On the other hand, there is a like-
lihood that the minister’s proposal
would, over time, lead to a reduction
in the country’s demand for foreign
exchange, a redeployment of capital
from the retail/distribution sector
to the export manufacturing sector
and an increase in T&T’s non-energy
exports.
If Mr Imbert’s objective is to
increase both T&T’s non-energy
exports and legitimate import
substitution, he needs to satisfy
himself that the country’s top
non-energy manufacturing users
of foreign exchange are also sig-
nificant exporters and earners of
foreign exchange or supply goods
to the local market that would
otherwise be imported.
The five largest consumers of
foreign exchange among manu-
facturers for the period January
2013 to November 2015, identi-
fied by the Central Bank, were:
Nestle—US$194 million; Wit-
co—US$129 million; Carib Brew-
ery—US$107 million; National
Flour Mills—US$102 million; and
Caribbean Bottlers Ltd (Coca
Cola)—US$94 million.
It should not be too difficult
for the Ministry of Finance to
establish what is the net foreign
exchange earned by these five
manufacturers and the extent to
which their production replaces
goods that would otherwise be
imported.
It is noteworthy that four other
large manufacturers—Associated
Brands, Bermudez, Vemco and
Unilever—are not on the list of
manufacturers who consume large
amounts of foreign exchange. Pre-
sumably, those companies have
developed strong export markets
from which they earn substantial
amounts of foreign exchange,
which all local manufacturers
should be incentivised to do.
Before rushing to implement
his proposal, Mr Imbert should
consider the potential impact on
the country’s foreign exchange
earnings that provide T&T’s man-
ufacturers with fiscal incentives
for increasing foreign exchange
earning over prior years.
He may also wish to consider
the merits of a more competitive
exchange rate regime, such as was
implemented in April 1993 with
the flotation of the TT dollar. That
change in the foreign exchange
regime provided a dramatic stim-
ulus to T&T’s productive sector
and paved the way, along with
other structural reforms in the
economy, to two decades of rising
wealth in the country.
Also, the minister should be
aware that providing privileged
access of foreign exchange to
manufacturers harkens back to
the EC-O system of the 1980s,
which required companies and
people to apply for a licence to get
foreign exchange.
Unless such a system is tightly
managed and properly supervised,
neither of which has ever been
a T&T strong point, it is fraught
with the likelihood that bribery
and corruption would prejudice
the purpose of the preference.
Jubilant T&T supporters during the FIFA Russia 2018 World Cup Qualifier match between T&T and Panama at the Hasely Crawford Stadium, on Friday
night. PHOTO: ALLAN C CRANE/CA IMAGES
FOOTBALL JUBILATION
Analyse, consult before changing forex regime
Mr Imbert’s proposal to provide lo-
cal manufacturers with preferential
access to foreign exchange—placing
them at the front of the queue ahead
of the retail/distribution sector and
car dealerships—is worthy of national
consideration...